M/S Sharman Udyog Pvt. Ltd v. Commissioner Of Income Tax, Ludhiana And Another

ITA No. 19 of 20011] IN THE HIGH COURT OF PUNJAB AND HARYANAAT CHANDIGARH ITA No. 19 of 2001Date of decision: February 19,2020 M/s Sharman Udyog Pvt. Ltd. .. Appellant V. Commissioner of Income Tax, Ludhiana and another .. Respondents CORAM:HON'BLE MR. JUSTICE AJAY TEWARIHON'BLE MR. JUSTICE AVNEESH JHINGANHON'BLE MR. JUSTICE AVNEESH JHINGAN Present: |Mr. Alok Mittal, Advocate for the appellant. Mr. Rajesh Katoch, Senior Standing Counsel andMs. Pridhi Jaswinder Sandhu, Junior Standing Counselfor the revenue.Ms. Pridhi Jaswinder Sandhu, Junior Standing Counselfor the revenue. AVNEESH JHINGAN, J. The assessee is in appeal under Section 260A of the IncomeTax Act, 1961 (for short, ‘the 1961 Act') against the order dated 22.6.2000passed by the Income Tax Appellate Tribunal, Chandigarh Bench (forShort, ‘the Tribunal’) partly allowing the appeal of the revenue. Followingsubstantial questions of law have been claimed in the appeal: “(a) Whether in the facts and circumstances of the case, the orders Annexures P-1 and P-3 are legally sustainable? :<;Whether in the facts and circumstances of the case, theassessee is entitled to charge arrears of depreciation dueto a change in the method of providing depreciation forassessee is entitled to charge arrears of depreciation dueto a change in the method of providing depreciation for ITA No. 19 of 2001|2]| earlier years to the profit and loss account of the currentyear for the purpose of computing book profit U/s 115-Jof the Act? :/;Whether in the facts and circumstances of the case,“Book Profit” tor purposes of Section 115-J of IT. Acthas to be calculated for arriving at the said figure had tobe worked out as per schedule VI of the Companies Actand not as per the Income Tax Act and the Income TaxRules?“Book Profit” tor purposes of Section 115-J of IT. Acthas to be calculated for arriving at the said figure had tobe worked out as per schedule VI of the Companies Actand not as per the Income Tax Act and the Income TaxRules? :-;Whether in the facts and circumstances of the case oncorrect interpretation of Section 115-J of I.T. Act fordetermining the “Book Profit’, the appellant had optionto adopt depreciation rates prescribed in the Income TaxRules, 1962 in preference to the rates prescribed inSchedule XIV of the Companies Act, 1956.correct interpretation of Section 115-J of I.T. Act fordetermining the “Book Profit’, the appellant had optionto adopt depreciation rates prescribed in the Income TaxRules, 1962 in preference to the rates prescribed inSchedule XIV of the Companies Act, 1956. :$;Whether in the facts and circumstances of the case, themeaning of “Book Profit’appearing in Section 115-J ofthe I.T. Act, LT.A.T. is legally correct in view of“booklet on Taxation of Companies” issued byDirectorate of Income Tax, R. S. P and Public Relations,New Delhi?meaning of “Book Profit’appearing in Section 115-J ofthe I.T. Act, LT.A.T. is legally correct in view of“booklet on Taxation of Companies” issued byDirectorate of Income Tax, R. S. P and Public Relations,New Delhi? (f)Whether Set-Off of business loss or unabsorbeddepreciation whichever is less under Clause iv ofexplanation to sub section (IA) of Section 115-J can onlybe in respect of depreciation already provided for in therelevant assessment year as per the companies act or candepreciation whichever is less under Clause iv ofexplanation to sub section (IA) of Section 115-J can onlybe in respect of depreciation already provided for in therelevant assessment year as per the companies act or can ITA No. 19 of 2001}3]] the assessee choose the revised method for claimingunabsorbed depreciation of the earlier years?” However, while arguing the matter, arguments have been|addressed with regard to questions (b) and (c) which would cover the entirecontroversy in the present appeal. (f)Whether Set-Off of business loss or unabsorbeddepreciation whichever is less under Clause iv ofexplanation to sub section (IA) of Section 115-J can onlybe in respect of depreciation already provided for in therelevant assessment year as per the companies act or candepreciation whichever is less under Clause iv ofexplanation to sub section (IA) of Section 115-J can onlybe in respect of depreciation already provided for in therelevant assessment year as per the companies act or can ITA No. 19 of 2001}3]] the assessee choose the revised method for claimingunabsorbed depreciation of the earlier years?” However, while arguing the matter, arguments have been|addressed with regard to questions (b) and (c) which would cover the entirecontroversy in the present appeal. The relevant facts are that the appellant-company was engagedin manufacture of woven labels. The return for the assessment year 1989-90was filed showing ‘nil’ income. The case was taken up in scrutiny. TheAssessing Officer vide order dated 28.10.1991 disallowed the depreciationclaimed by the appellant as per the provisions of the 1961 Act and IncomeTax Rules, 1962 (for short, ‘the Rules’). The Appellate Authority partlyallowed the appeal and directed the Assessing Officer to compute profitunder Section 115J of the 1961 Act by allowing depreciation as providedunder the 1961 Act and the Rules. [It was further held that deduction oaccount of unabsorbed depreciation be also allowed. Feeling aggrieved, therevenue preferred the appeal. The Tribunal vide order dated 22.6.2000partly allowed the appeal of the revenue and held that depreciation asprovided under the Companies Act, 1956 (for short, ‘the 1956 Act’) is to beallowed and the assessee is not entitled to charge arrears of depreciation toprofit and loss account, hence the present appeal. As regards question (c), similar question has been answered byus in ITA No. 134 of 2000—M/s Gita Forging (P) Ltd. v. Commissionerof Income Tax Patiala and another5decided on 52.2020 in favour ofaSSeSS@e€. With regard to question (b), learned counsel for the appellantargued that the matter is covered by the decision of the Supreme Court in ITA No. 19 of 20014] 3Apollo Tyres Ltd. v. Commissioner of Incometax, Kochi, 2002 (255)ITR 273. Learned counsel for the revenue was not in a position to disputethat the Supreme Court inApollo Tyres Ltd.8Scase (Supra)dealt with theissue involved while dealing with question (1) framed in that case.Question (1) before the Supreme Court, brief facts as noted forthe said question and the conclusion are reproduced below: ?Question (1) (1) Can an Assessing Officer while assessing a company forincome tax under Section 115J of the Income Tax Actquestion the correctness of the profit and loss accountprepared by the assessee company and certified by theStatutory auditors of the company as having been preparedin accordance with the requirements of Parts II and III ofSchedule VI to the Companies Act? Brief facts: The assessee company while determining its net profit forthe relevant accounting year has provided for arrears ofdepreciation in its profit and loss account which accordingto the Revenue is not in accordance with Part II and III ofSchedule VI to the Companies Act, 1956 (the ‘CompaniesAct’). Hence, the assessing officer while considering thecase of the assessee company under Section 115-J of the ITAct recomputed the said profit and loss account of thecompany so as to exclude the provisions made for arrears ofdepreciation. The said action of the assessing officer in ITA No. 19 of 20015 ]| Brief facts: The assessee company while determining its net profit forthe relevant accounting year has provided for arrears ofdepreciation in its profit and loss account which accordingto the Revenue is not in accordance with Part II and III ofSchedule VI to the Companies Act, 1956 (the ‘CompaniesAct’). Hence, the assessing officer while considering thecase of the assessee company under Section 115-J of the ITAct recomputed the said profit and loss account of thecompany so as to exclude the provisions made for arrears ofdepreciation. The said action of the assessing officer in ITA No. 19 of 20015 ]| questioning the correctness of the accounts maintained bythe company was challenged by the company before theIncome Tax Appellate Tribunal (‘the tribunal’) whichamong other things held that the assessing officer has noauthority to reopen the accounts of a company which iscertified by the auditors of the company as having beenmaintained in accordance with the provisions of theCompanies Act and which account has been accepted in theGeneral Meeting of the Company as well as by theRegistrar of Companies. This view of the tribunal was notaccepted by the High Court which held that the assessingofficer has the authority to examine whether the accounts ofthe company have been maintained in accordance with therequirement of Sub-section (1A) of Section 115-J and inthat process if he finds that the accounts of the company arenot in accordance with the provisions of the CompaniesAct, he could make the necessary changes beforeproceeding to assess the company for tax under theExplanation to Section 115-J of the IT Acct.Conclusion Therefore, we are of the opinion, the assessing officer whilecomputing the income under Section 115-J has only thepower of examining whether the books of account arecertifies by the authorities under the Companies Act ashaving been properly maintained in accordance with theCompanies Act. The assessing officer thereafter has the ITA No. 19 of 2001160] limited power of making increases and reductions asprovided for in the Explanation to the said section. To put itdifferently, the assessing officer does not have thejurisdiction to go behind the net profit shown in the profitand loss account except to the extent provided in theExplanation to Section 115-J.” In view of the above, question (b) is answered in favour of the asse@SSee€ The matter is remanded back to the Assessing Officer tocompute the income under Section 115J of the 1961 Act in accordance withlaw. Parties through their counsel are directed to appear before theAssessing Officer on 5.4.2020. The appeal is disposed of accordingly. (AVNEESH JHINGAN) (AJAY TEWARI) JUDGE JUDGE February 19, 20208)Whether speaking/reasoned:Yes/NoWhether reportable:Yes/No